Q. When does a non-resident Indian (NRI) need a permanent account number (PAN)? I plan to invest in Indian mutual funds. What is the procedure for obtaining an Indian PAN card?

Expert Comment: An NRI needs to obtain a PAN under certain circumstances.

One, when an NRI is liable to file income-tax returns in India in case his taxable income in India is above the threshold limit, which is not chargeable to tax, or for claiming a refund of taxes paid or withheld, or for claiming a carry forward of loss, he needs a PAN which is mandatorily required to be quoted at the time of filing income-tax returns.

Two, it is also mandatory to have a PAN for the purpose of entering into certain specified financial transactions such as transactions of an amount of Rs.50,000 or more for the purchase of units of mutual funds, acquiring shares, debentures or bonds of a company, payment of life insurance premium, or for opening a demat account, opening a bank account and having a broking account, among other things.

Whenever an NRI has any income on which tax is required to be deducted at source, it is mandatory to furnish the PAN to the deductor, failing which the deductor will deduct tax at source at the higher of the rate prescribed under the Double Tax Avoidance Agreement, or the Income-tax Act or at 20%. Hence, if the prescribed rate either as per the Indian Income-tax Act or as per the Double Tax Avoidance Agreement is say 10%, in the absence of PAN, the tax will be deducted at 20%.

Q. Procedure to obtain PAN:

Expert Comment: Application for PAN by an NRI, who is an Indian citizen, has to be made in form 49A and by an individual who is not an Indian citizen has to be made in form 49AA. Persons of Indian origin (PIOs) and overseas citizens of India (OCIs) have to fill in form 49AA, too. You can download these forms from the income-tax website, www.incometaxindia.gov.in. Detailed instructions for filling the form are available along with the form. The application can be filed online, but a signed copy of the acknowledgement along with photographs and proof of identification and proof of address has to be submitted manually also. You need to submit two passport-size photographs one of which should be signed across. Along with the application, certain documents are required to be submitted as proof of identity and proof of address.

In case of form 49A, the documents accepted are proof of identity including school leaving certificate, depository account statement, bank account statement, passport, driving licence and voter identity card, and is to be self attested. For proof of address, telephone bill, electricity bill, depository account statement, passport, driving licence and voter identity card which are self attested, or copy of bank account statement in the country of residence or copy of non-resident external (NRE) bank account statement duly attested by the bank manager are accepted.

In case of form 49AA, the documents required for proof of identity include a copy of passport, copy of PIO card issued by the Indian government, copy of OCI card issued by the Indian government, copy of other national or citizenship identification number, taxpayer identification number, duly attested by the Indian embassy/consulate/high commission/apostille in the country where the applicant is located. For proof of address, any of the documents listed above or a copy of the bank account statement in the country of residence or a copy of NRE bank statement in India, duly attested by the bank manager, is accepted.

Q. I am a Singapore-based non-resident Indian (NRI) having non-resident ordinary (NRO) fixed deposits in India with State Bank of India. For FY13, I will earn an interest of Rs.12 lakh. The withholding tax on the interest as informed by the bank is Rs.3,70,800—30.9% of the interest earned. I do not have any other income in India. Please advise as to my tax liability as per the Indian Income-tax Act.

Expert Comment: It is assumed that you are a tax resident of Singapore. In that case you can avail the benefit of India Singapore Double Tax Avoidance Agreement (DTAA), which provides for tax on interest earned in India at 15%. To claim the DTAA benefit, you will need to obtain a tax residency certificate (TRC) from the government of Singapore, which should contain your name and address, status, nationality, tax identification number, residential status for tax purposes and the period for which the certificate is valid. In the absence of TRC, you cannot avail the benefit of DTAA, as per a recent amendment in the Indian tax laws. Upon obtaining the TRC, you can file your income-tax return in India showing the gross interest income of Rs.12 lakh and tax payable thereon at 15% or Rs.1.8 lakh. Since the tax withheld is higher, you can claim the refund of the extra tax paid by filing the return of income electronically in form no. ITR 2 through the e-filing website of the income-tax department (https://incometaxindiaefiling.gov.in/) or through the department’s national website (www.incometaxindia.gov.in). After filing the return online, an acknowledgement will be generated in ITR-V which has to be printed and signed manually and filed with the Central Processing Centre, Bangalore, India.

For the next fiscal, you can intimate the bank about your tax residency status to enable them to withhold tax at 15%, as per the India Singapore DTAA. You will need to submit a TRC to the bank for this.

If for any reason you are not entitled to the benefit of the India Singapore DTAA, you can still avail the basic tax exemption, as per the Indian tax laws. For the current fiscal, the income tax rates are nil for income up to Rs.2 lakh; 10% of the income exceeding Rs.2 lakh if the income is between Rs.2 lakh and Rs.5 lakh; Rs.30,000 plus 20% of the income exceeding Rs.5 lakh if income is between Rs.5 lakh and Rs.10 lakh; Rs.1.3 lakh plus 30% of the income exceeding Rs.10 lakh if income is above Rs.10 lakh. A cess of 3% is levied on the amount of income-tax computed above. In that case, the tax payable would be Rs.1,95,700.

In certain cases of lower income in India, it may be beneficial to consider the regular tax rates to avail the basic exemption limits rather than the treaty rates.